This study analyzes a sample of financial restatements from 2011 and 2012 as a way to assess a proposed “five percent rule of materiality” for financial reporting decisions. Such a rule claims the average investor is only influenced by income restatements greater than five percent. Market reactions are observed through stock price, volume, and bid-ask spread following the restatement in the Form 10-K/A. The study finds only some firms restating net income by more than five percent experience statistically significant reactions in two of these metrics.

KARACHI (June 24, 2014) – The International Accounting Standards Board (IASB), which develops global accounting standards for accounting standards, and the Financial Accounting Standards Board (FASB), the body responsible for developing accounting policies in USA, in May 2014 issued the long-awaited converged standard for revenue recognition from customer contracts. The new standard hinges on the principle that companies depict the ...